25) Material Accounting Policies
A. Statement of Compliance with Ind AS
These standalone financial statements have been prepared in accordance with the Indian
Accounting Standards (referred to as “Ind AS”) as prescribed under section 133 of the
Companies Act, 2013 read with the Companies (Indian Accounting Standards) Rules, 2015 as
amended.
B. Basis of Preparation
The financial statements are prepared in accordance with the historical cost convention, except
for certain items that are measured at fair values, as explained in the accounting policies.
Fair Value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date, regardless of whether
that price is directly observable or estimated using another valuation technique. In estimating
the fair value of an asset or a liability, the Company takes into account the characteristics of the
asset or liability if market participants would take those characteristics into account when pricing
the asset or liability at the measurement date.
All assets and liabilities for which fair value is measured or disclosed in the financial statements
are categorized within the following fair value hierarchy based on the lowest level input that is
significant to the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable.
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable.
The Company uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs.
C. Basis of classification of Current and Non-Current
The Company presents assets and liabilities in the balance sheet based on current/non-current
classification
An asset is classified as current when it is:
a) Expected to be realized or intended to be sold or consumed in normal operating cycle
b) Held primarily for the purpose of trading
c) Expected to be realized within twelve months after the reporting period, or
d) Cash or cash equivalent unless restricted from being exchanged or used to settle a liability
for at least twelve months after the reporting period
All other assets are classified as non-current.
A liability is classified as current when:
a) It is expected to be settled in normal operating cycle
b) It is held primarily for the purpose of trading
c) It is due to be settled within twelve months after the reporting period, or
d) There is no unconditional right to defer the settlement of the liability for at least twelve
months after the reporting period
All other liabilities are classified as non-current.
D. Operating Cycle
All assets and liabilities have been classified as current or non-current as per the Company’s
normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013
and Ind AS 1 - Presentation of Financial Statements.
Based on the nature of products / activities of the Company and the normal time between
acquisition of assets and their realization in cash or cash equivalents, the Company has
determined its operating cycle as 12 months for the purpose of classification of its assets and
liabilities as current and non-current.
E. Use of Estimates
The preparation of financial statements in conformity with Ind AS requires management to make
judgments, estimates and assumptions that affect the application of the accounting policies
and the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the year. Actual results could differ from those estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognized in the period in which the estimate is revised if the revision affects only that
period; they are recognized in the period of the revision and future periods if the revision affects
both current and future periods.
F. Property, Plant and Equipment - Tangible Assets
Property, plant and equipment are stated at cost of acquisition or construction less accumulated
depreciation and impairment, if any. For this purpose, cost includes deemed cost which
represents the carrying value of property, plant and equipment recognized as at 1st April, 2016
measured as per the previous GAAP.
Cost is inclusive of inward freight, duties and taxes and incidental expenses related to acquisition.
In respect of major projects involving construction, related pre-operational expenses form part of
the value of assets capitalized. Expenses capitalized also include applicable borrowing costs for
qualifying assets, if any. All up-gradation/enhancements are charged off as revenue expenditure
unless they bring similar significant additional benefits.
An item of property, plant and equipment is derecognized upon disposal or when no future
economic benefits are expected to arise from the continued use of asset. Any gain or loss
arising on the disposal or retirement of an item of property, plant and equipment is determined
as the difference between the sales proceeds and the carrying amount of the asset and is
recognized in the Statement of Profit and Loss.
Depreciation of these assets commences when the assets are ready for their intended use
which is generally on commissioning. Items of property, plant and equipment are depreciated
in a manner that amortizes the cost (or other amount substituted for cost) of the assets after
commissioning, less its residual value, over their useful lives as specified in Schedule II of the
Companies Act, 2013 on a straight-line basis. Land is not depreciated.
Assets held under finance leases are depreciated over their expected useful lives on the same
basis as owned assets or, where shorter, the term of the relevant lease. Property, plant and
equipment’s residual values and useful lives are reviewed at each Balance Sheet date and
changes, if any, are treated as changes in accounting estimate.
G. Impairment of Assets
Impairment loss, if any, is provided to the extent, the carrying amount of assets or cash
generating units exceed their recoverable amount.
Recoverable amount is higher of an asset’s net selling price and its value in use. Value in use is
the present value of estimated future cash flows expected to arise from the continuing use of an
asset or cash generating unit and from its disposal at the end of its useful life.
H. Financial Assets
Recognition: The financial assets not recorded at fair value through profit or loss are recognized
initially at fair value plus transaction costs that are attributable to the acquisition of the financial
asset. Transaction costs of financial assets carried at fair value through profit or loss are
expensed through the Statement of Profit and Loss. However, Trade receivable that don’t
contain a significant financing component are measured at transaction price.
Classification: Management determines the classification of an asset at initial recognition
depending on the purpose for which the assets were acquired. The subsequent measurement
of financial assets depends on such classification.
Financial assets are classified as those measured at:
a) Amortized cost, where the financial assets are held solely for collection of cash flows
arising from payments of principal and/ or interest.
b) Fair value through other comprehensive income (FVTOCI), where the financial assets
are held not only for collection of cash flows arising from payments of principal and
interest but also from the sale of such assets. Such assets are subsequently measured
at fair value, with unrealized gains and losses arising from changes in the fair value being
recognized in other comprehensive income.
c) Fair value through profit or loss (FVTPL), where the assets are managed in accordance
with an approved investment strategy that triggers purchase and sale decisions based on
the fair value of such assets. Such assets are subsequently measured at fair value, with
unrealized gains and losses arising from changes in the fair value being recognized in the
Statement of Profit and Loss in the period in which they arise. Trade receivables, Advances,
Security Deposits, Cash and cash equivalents etc. are classified for measurement at
amortized cost while investments may fall under any of the aforesaid classes. However, in
respect of particular investments in equity instruments that would otherwise be measured
at fair value through profit or loss, an irrevocable election at initial recognition may be
made to present subsequent changes in fair value through other comprehensive income.
Impairment: The Company assesses at each reporting date whether a financial asset (or a group
of financial assets) such as investments, trade receivables, advances and security deposits held at
amortized cost and financial assets that are measured at fair value through other comprehensive
income are tested for impairment based on evidence or information that is available without undue
cost or effort. Expected credit losses are assessed and loss allowances recognized if the credit
quality of the financial asset has deteriorated significantly since initial recognition.
Reclassification: When and only when the business model is changed, the Company
shall reclassify all affected financial assets prospectively from the reclassification date as
subsequently measured at amortized cost, fair value through other comprehensive income,
fair value through profit or loss without restating the previously recognized gains, losses or
interest and in terms of the reclassification principles laid down in the Ind AS relating to Financial
Instruments.
De-recognition: Financial assets are de-recognized when the right to receive cash flows from
the assets has expired, or has been transferred, and the Company has transferred substantially
all of the risks and rewards of ownership.
If the assests is one that is measured at:-
a) Amortized cost, the gain or loss is recognized in the Statement of Profit and Loss;
b) Fair value through other comprehensive income, the cumulative fair value adjustments
previously taken to reserves are reclassified to the Statement of Profit and Loss unless the
asset represents an equity investment in which case the cumulative fair value adjustments
previously taken to reserves is reclassified within equity.
Income Recognition: Interest income is recognized in the Statement of Profit and Loss using
the effective interest method. Dividend income is recognized in the Statement of Profit and Loss
when the right to receive dividend is established.
I. Financial Liabilities
Borrowings, trade payables and other financial liabilities are initially recognized at the value of
the respective contractual obligations. They are subsequently measured at amortized cost. Any
discount or premium on redemption/ settlement is recognized in the Statement of Profit and
Loss as finance cost over the life of the liability using the effective interest method and adjusted
to the liability figure disclosed in the Balance Sheet.
Financial liabilities are de-recognized when the liability is extinguished, that is, when the
contractual obligation is discharged, cancelled and on expiry.
J. Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand and
short-term deposits with an original maturity of three months or less, which are subject to an
insignificant risk of changes in value.
K. Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount is included in the Balance Sheet
where there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis or realize the asset and settle the liability simultaneously.
L. Revenue
a) Interest income: Interest income from debt instruments is recognized using the effective
interest rate method. The effective interest rate is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial asset to the gross carrying
amount of a financial asset. While calculating the effective interest rate, the Company
estimates the expected cash flows by considering all the contractual terms of the financial
instrument but does not consider the expected credit losses.
b) Dividend income: dividend is recognized when the right to receive the payment is
established (generally on shareholder’s approval by the reporting date).
c) Other revenues: are recognised on accrual basis, except where there are uncertainties in
realisation / determination of income and in such case income is recognised on realisation
/ certainty.
M. Employee Benefits
a) Retirement benefit costs and termination benefits:
Payments to defined contribution retirement benefit plans are recognized as an expense
when employees have rendered service entitling them to the contributions.
Contribution towards Provident Fund is paid as per the statutory provisions. These benefits
are charged to the Statement of profit and loss of the year when they become due. For
defined benefit retirement benefit plans, the cost of providing benefits is determined using
the projected unit credit method, with actuarial valuations being carried out at the end of
each annual reporting period.
Re-measurement, comprising actuarial gains and losses, the effect of the changes to the
return on plan assets (excluding net interest), is reflected immediately in the balance sheet
with a charge or credit recognized in other comprehensive income in the period in which
they occur. Re-measurement recognized in other comprehensive income is reflected
immediately in retained earnings and is not reclassified to the statement of profit and loss.
Past service cost is recognized in the statement of profit and loss in the period of a plan
amendment. Net interest is calculated by applying the discount rate at the beginning of the
period to the net defined benefit liability or asset.
Defined benefit costs are categorised as follows:
• service cost (including current service cost, past service cost, as well as gains and
losses on curtailments and settlements);
• net interest expense or income; and
• Re-measurement
b) Short-term and other long-term employee benefits:
A liability is recognised for benefits accruing to employees in respect of wages and salaries
in the period the related service is rendered at the undiscounted amount of the benefits
expected to be paid in exchange for that service. Liabilities recognised in respect of
short-term employee benefits are measured at the undiscounted amount of the benefits
expected to be paid in exchange for the related service.
Leave availment / encashment benefit is provided as per Company Scheme. Employees
are entitled to accumulate leaves subject to certain limit as per Company scheme.
Liabilities for compensated absence that are not expected to be settled wholly within 12
months after the end of the period in which the employees rendered the related service,
are measured at the present value of expected future payment to be made in respect of
service provided by employees up to the end of reporting period using the projected unit
credit method. The benefits are discounted using the market yields at the end of reporting
period. Re-measurement as a result of experience adjustments and change in actuarial
assumptions are recognised in the statement of profit and loss. The liability is determined
through actuarial valuation using projected unit credit method.
N. Taxes on Income
Income tax expense represents the sum of the tax currently payable and deferred taxation.
a) Current Tax
Current tax in the Statement of Profit and Loss is provided as the amount of tax payable
in respect of taxable income for the period using tax rates and tax laws enacted during the
period, together with any adjustment to tax payable in respect of previous years. Taxable
profit differs from ‘profit before tax’ as reported in the statement of profit and loss because
of items of income or expense that are taxable or deductible in other years and items that
are never taxable or deductible.
b) Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax bases used
in the computation of taxable profit. Deferred tax liabilities are generally recognized for
all taxable temporary differences. Deferred tax assets are generally recognized for all
deductible temporary differences to the extent that it is probable that taxable profits will be
available against which those deductible temporary differences can be utilized.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply
in the period in which the liability is settled or the asset realized, based on tax rates (and
tax laws) that have been enacted or substantively enacted by the end of the reporting
period.
Deferred tax is recognized in the statement of profit and loss, except when they relate to
items that are recognized in other comprehensive income or directly in equity, in which
case, the deferred tax is also recognized in other comprehensive income or directly in
equity respectively.
O. Claims
Claims against the Company not acknowledged as debts are disclosed after a careful evaluation
of the facts and legal aspects of the matter involved.
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